Mexico’s Changing Distribution of Income?

Abstract

The Mexican economy experienced three major economic events during the last decade. First, the implementation of the North American Free Trade Agreement (NAFTA) starting on January 1, 1994, was a major milestone in the opening of the Mexican economy. Second, Mexico suffered its worst economic crisis since the Great Depression in late 1994 and throughout 1995. Third, the U.S. recession beginning in late 2000 resulted in a major decline in Mexican manufacturing employment, particularly in the maquiladora industry, where more than 200,000 jobs were lost between 2000 and 2002 (INEGI 2004). In addition, several major political events occurred during the last decade. On the same day NAFTA came into effect, there was open rebellion in the state of Chiapas. Also in 1994, Mexico's presidential candidate Luis Donaldo Colosio was assassinated in Tijuana in March. Later that year, in September, Mexico's attorney general was assassinated. Mexico selected Vicente Fox as its president in 2000. Fox was the first Mexican president since 1928 who did not belong to the Partido Revolucionario Institucional (PRI). Fox promised substantial economic and political reforms. In brief, Mexico experienced considerable economic and political instability during the last decade. Changes in income distribution often occur slowly over long periods of time, but periods of significant instability may result in distributional effects during the short run. Mexico's political and economic instability during the last decade could be expected to affect its distribution of income in some obvious and not so obvious ways. In this paper, we address three specific questions regarding income distribution in Mexico. First, in what ways, if any, did the distribution of total money income in Mexico change during this turbulent decade? Second, did Mexico's income distribution in urban and rural